Author: Aziz Kitaka
If a payment is made by a Ugandan company to a non-resident/foreign party, it is prudent practice that the Ugandan company recognizes the expense in its financial statements and returns. In case payment is made and no withholding tax is paid, URA is mandated to carry out an audit on the Ugandan company and issue withholding tax assessments for the money paid to a non-resident/foreign party.
The Tax Appeals Tribunal recently threw more light on this tax legal requirement;
In Roche Transport and Logistics v. URA (Application No. 94 of 2020), URA had issued withholding tax assessments on the applicants who had made payment to a foreign company but did not withhold taxes on them. The Applicant objected on grounds that the company was a non-resident person and thus not subject to withholding tax. The Tax Appeals Tribunal assessed the law and held that URA had to generate the withholding tax assessment since there was a Ugandan-sourced service contract.
The Uganda Revenue Authority Act mandates the URA to make tax assessments and collect tax. In K.M Enterprises & Others v URA, it was stated that the mandate of URA to collect tax in accordance with the laws of Uganda can not be fettered or overridden by any agreement.
Withholding tax (WHT) is a form of income tax that is withheld at source by one person (withholding agent) upon making payment to another person(payee). This tax is deducted at source and remitted to URA in advance by the withholding agent.
WITHHOLDING TAX ON PAYMENTS TO NON-RESIDENTS
Withholding tax is imposed on every non-resident person deriving income under a Ugandan -source service contract. This is a contract under which the purpose is the performance of services which gives rise to income sourced in Uganda. The tax is charged at a rate of 15% of the gross amount of any payment to the non-resident under the Ugandan sourced service contract.
The law:
Section 85 of the Income Tax Act shows that a tax is imposed on every non-resident person deriving income under a Ugandan sourced service contract at a rate of 15%.
Part IV of the 3rd Schedule provides that the income tax rate applicable to a non-resident person under Section 85 is 15%
Section 85(4) defines a “Ugandan Sourced Contract” to mean a contract other than an employment contract where it’s principle purpose is performance of services which give rise to income sourced in Uganda.
Section 79(c)(ii) implies that income will be deemed to have been sourced in Uganda if a payment is made for services received from a non-resident person.
WITHHOLDING TAX ON INTERNATIONAL PAYMENTS
Tax is imposed on every non-resident person who derives any dividend, interest, royalty, rent, natural resource payment or management charge from sources in Uganda. The tax is withheld by the payer at a rate of 15% of the gross amount before payment/remittance of the amount is made.
The Law:
Section 120 of the Act deals with ‘International Payments”. It reads; “(1) Any person making a payment of a kind referred to in Sections 83, 85 or 86 shall withhold from the payment the tax levied under the relevant Section.
FAILURE TO WITHHOLD AND/ OR REMIT THE TAX WITH HELD
A withholding agent who fails to withhold tax is personally liable to pay to the Commissioner the amount of tax which has not been withheld and/or remitted to URA. The agent, however, is entitled to recover the amount from the payee thereafter.